Well-being is more than a side-show to neoliberal economics

Well-being is not just a luxury for good economic times. Reducing poverty and promoting equality are more important goals than simply increasing the size of the economy. To this end, new data shows that stability is better than growth.

Well-being should not be placed outside the economic sphere, in the box marked 'fluffy things'. Credit: Wikimedia/Pieter Lanser.

When British Prime Minister David Cameron first floated the idea of measuring 'GWB' - general well-being - alongside GDP, he was still a fresh-faced leader of the opposition.

This
is exactly what’s wrong with the debate about well-being at the
moment. It places well-being firmly outside the economic sphere, in a
box marked ‘fluffy things’. Conjuring up images of raindrops on
roses and whiskers on kittens, these remarks set the stage for
subsequent media coverage of the Office of National Statistics’
well-being
data,
which has tended to adopt a light-hearted ‘and finally…’ tone.

New
figures are usually reported via un-illuminating news stories on
whether countries are getting more or less happy, or jokey pieces in
the local press of places ranked the ‘happiest’ or ‘most
miserable’ in the UK or the USA.

“Happy
in Hampshire”, the BBC
chortled in response to last October’s figures.
“Singing in the rain: new figures show Scottish islanders are
happiest people in UK”, guffawed The
Herald
newspaper.

Well-being
is rarely, if ever, treated as a serious subject for political or
economic debate.

But
for Cameron, the well-being agenda was never really about rethinking
the economy. Indeed, his speech was careful to emphasise that
well-being would sit on top of a neoliberal approach to economic
policy, not challenge it.

For
instance, having noted the benefits of flexibility for people’s
well-being, he was quick to clarify that “government should not
regulate flexible working” and that intervening in labour markets
would “produce unintended consequences that can end up damaging our
competitiveness”.

So
it’s
hardly surprising that well-being seems to have slipped down the
political agenda. As Cabinet Office Minister Nick Hurd recently put
it: “Since we embarked on this journey, lots of other short-term
pressures have piled on to the system.”

In
other words, well-being is seen as a nice-to-have, a luxury for good
economic times, hardly a priority in a recession. Saying
we should go beyond GDP is all very well when GDP is going up, but
when it’s not, then talking about well-being seems frivolous, out
of touch with the reality of people’s lives.

In
Germany it’s a similar story: the recession has seen a sharp fall
in public support for new measures of progress to complement GDP. The
drop has been largest among the least well off.

But
it doesn’t have to be this way.

In
fact, a focus on well-being could provide support for a more radical
economic agenda – one that cares more, not less, about reducing
poverty and inequality.

The
well-being evidence presents a fundamental challenge to the
neoclassical concept of welfare
– one which brings the rest of the edifice tumbling down with it.
Essentially, neoclassical economics assumes that individual welfare
equates to individual consumption - and, what's more, to absolute
rather than relative consumption. Social welfare can therefore be
measured as the sum of everyone’s individual consumption choices.

In
this view, the size of the economy is a pretty good proxy for social
welfare. If we go for growth whilst ensuring that markets work
efficiently to allocate goods to the people who value them most, then
social welfare will be optimised.

But
well-being data demonstrates that this just isn’t true. For one
thing, the relationship between income and well-being is far from
straightforward. Money matters, for sure, particularly if you don’t
have enough of it to meet your basic needs.

Above
a certain threshold, though, increased income barely translates into
increased well-being, either in cross-country comparisons or in
analyses of how individual countries develop over time. This confirms
the notion of diminishing returns – for many people, finding a £10
note on the street could make a big difference; for a billionaire,
it’s not even worth bending over for. Similarly, relative
income
seems to be more important than absolute income.

Unsurprisingly,
social comparisons do matter; we are not the atomised, rational
maximising individuals of neoclassical theory. Indeed, social
relations
– not just social comparisons of what we consume, but the quality
of our communities and our relationships – are critical
determinants of well-being.

The promise of
consumer capitalism is therefore illusory. Evidence
suggests that we quickly adapt to the well-being benefits of having
more stuff (the so-called ‘hedonic
treadmill’), leaving the achievement of
happiness through consumer goods eternally out of reach.

And as economist
Fred Hirsch pointed out,
the role of ‘positional
goods’
– which have value precisely because not everybody can have them –
means that mass dissatisfaction is built into the system.

All
this points to a fundamentally different way of doing economic
policy, with fundamentally different objectives.

Raising
the living standards of the poorest, and promoting increased equality
across the board, are more important goals than simply increasing the
size of the economy. As is becoming increasingly clear, the argument
that pursuing growth is the best way to achieve these things doesn’t
stack up.

In
liberal market economies like the US and UK, the gains of growth are
increasingly being concentrated in the hands of the few, with average
living standards stagnating.
The IMF now suggests
that inequality
undermines growth itself
– so the neoliberal approach to maximising social welfare is
fundamentally self-defeating. A rising tide doesn’t lift all boats.

On
the contrary, alleviating poverty and inequality need to be core and
explicit goals of macroeconomic policy.

Instability
and insecurity are also hugely damaging to well-being. For example,
the New Economics Foundation’s analysis
of European data
found that the difference in well-being between temporary and
permanent workers was actually greater than that between temporary
workers and the unemployed. If this seems surprising, that’s
perhaps because we so drastically underestimate the anxiety and
stress caused by insecurity.

The
promotion of ‘flexible labour markets’ in the name of growth and
competitiveness may therefore not make us better off if it leads to
the proliferation of insecure work. A recent
paper
by economists at the London School of Economics
even suggested that capitalist instability might help to explain why
well-being has failed to increase over recent decades in countries
like the US and UK.

Because
people are loss-averse, the dislocation of the busts far outweighs
the welfare gains of the booms. So well-being remains stagnant over
time.

On
that basis, as argued by Gus O’Donnell in a recent report
for the Legatum Institute,
a well-being approach would place stability ahead of growth in the
order of economic priorities – with implications for things like
financial regulation.

The
crucial importance of our relationships with others for well-being
challenges
the individualism of the status quo. Research has now firmly
established that both personal relationships (e.g. the amount of
face-to-face time we have with friends and family) and social
relationships (e.g. social cohesion or trust) are critical drivers
of well-being.

Perceived
levels of autonomy and control over one’s life also matter: for
instance, job control. Of course, sometimes these two elements may be
in conflict, but sometimes they may be mutually reinforcing, for
instance in the promotion of workplace democracy, participatory
politics or community ownership of resources like energy.

Although
a well-being approach is unavoidably anthropocentric,
this perspective also provides powerful support for efforts to keep
the economy within ecological limits. If, as
economist JK Galbraith
argued
over 50 years ago, welfare in developed societies has more to do with
fair distribution than growth - and if, as we have seen, our quality
of life is not primarily a function of what we consume - then
protecting the environment need
not be at odds
with promoting human well-being.

As
thinkers like Tim
Jackson
have suggested,
a post-growth agenda is not necessarily about making sacrifices, but
about superceding a broken economic model that is failing to make us
better off.

At
its best, the well-being agenda is not just a sideshow to neoliberal
economics: it points towards a new economics, one which values
equality, stability and community rather than simply growth for
growth’s sake.

More
fundamentally, it helps to remind us that markets and growth should
only ever be tools in the service of social goals
– not mantras that imprison us even as they undermine the ultimate
end of making people better off.

As
Simon Kuznets, the architect of GDP, said in 1962, ‘growth’
doesn’t make sense as a goal unless we answer the question “more
growth of what and for what”?

Used
intelligently, the concept of well-being can open up political space
to debate the things that really matter to us, both as individuals
and as a society.

About the author

Christine Berry is a researcher at New Economics Foundation's Centre for Well-being. Her current research focusses on new measures of progress and how they can be moved into the political and policymaking mainstream.

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